Monthly Currency Report Summary – February 2025
Overview: February 2025 was marked by significant volatility in the FX markets, driven largely by geopolitical tensions, central bank narratives, and economic data releases. The USD exhibited broad strength, keeping both the GBP and EUR under pressure. While the GBP/USD (Cable) faced resistance at key levels, the EUR/USD struggled to maintain upward momentum amid weak economic indicators. The GBP/EUR pair witnessed some of its strongest levels since 2016 but remained vulnerable to economic uncertainty.
GBP/USD Performance: The Cable fluctuated significantly throughout the month, experiencing both rallies and steep declines. Early February saw a strong USD following Trump’s tariff announcements, leading to a sharp drop in GBP/USD below 1.2300. However, the pair rebounded, reaching 1.2500 by mid-month as traders speculated on potential UK inflation resilience. Despite a positive shift in risk sentiment and stronger UK data in mid-February, the GBP/USD struggled to break key resistance levels at 1.2700, largely due to renewed USD strength and global economic uncertainties. By the end of the month, the pair had fallen below 1.2600 as the USD benefitted from safe-haven flows.
Key factors influencing GBP/USD:
- Trump’s Tariff Announcements: Heightened uncertainty in global trade relations bolstered USD demand, weakening GBP.
- UK Inflation & GDP Data: Higher-than-expected inflation at 3% momentarily strengthened GBP as hopes for a BoE interest rate cut diminished.
- BoE’s Monetary Policy Outlook: The market remained cautious ahead of the central bank’s decision, capping GBP upside.
- US PCE Inflation Data & Fed Speculation: A stronger USD toward month-end, backed by inflation data and speculation around the Fed’s next move, kept GBP/USD under pressure.
From a technical perspective, GBP/USD remained range-bound for much of February, with 1.2700 acting as key resistance and 1.2300 as critical support. The moving averages pointed to bearish momentum, while RSI indicators suggested oversold conditions toward the month’s end.
EUR/USD Performance: The EUR/USD struggled throughout February, facing resistance at 1.0500 and eventually falling below 1.0400 by the end of the month. Early in the month, the pair attempted a recovery amid weaker USD sentiment, reaching highs of 1.0530. However, weak German economic indicators, including retail sales and a decline in M3 money supply, dampened sentiment, leading to further losses.
Key factors influencing EUR/USD:
- ECB’s Monetary Policy: The central bank’s dovish stance kept EUR subdued, as markets priced in extended lower interest rates.
- German Inflation & Retail Sales: Disappointing retail sales data reduced support for the EUR, while inflation uncertainty created additional caution among traders.
- USD Safe-Haven Demand: Broad USD strength throughout the month, fueled by geopolitical risks and US economic resilience, led to EUR depreciation.
- Trump’s Trade Policies: The announcement of potential tariffs on the EU heightened market uncertainty, placing further downside pressure on EUR/USD.
Technically, EUR/USD was in a strong downtrend, failing to hold above its 50-day moving average. The 1.0400 level acted as psychological support, but further downside risks remain if US economic data continues to outperform.
GBP/EUR Performance: The GBP/EUR pair saw significant movements throughout February, peaking near 1.2134—one of its highest levels since 2016. The pair benefitted from relative GBP strength early in the month, driven by UK inflation data and a weaker EUR. However, resistance at 1.2100 remained a key hurdle, and the pair struggled to maintain gains amid broader market volatility.
Key factors influencing GBP/EUR:
- Diverging Economic Indicators: Strong UK inflation data supported GBP, while weak German retail data weighed on EUR.
- ECB & BoE Policy Expectations: The ECB’s dovish outlook contrasted with the BoE’s cautious stance, giving GBP a relative advantage.
- Risk Sentiment Shifts: Uncertainty surrounding US trade policies and geopolitical events led to periods of GBP weakness, limiting gains against the EUR.
Despite facing some downside pressure toward month-end, the GBP/EUR maintained a strong position above 1.2050.
Commodity-Linked Currencies (AUD, CAD, NZD): Commodity-linked currencies had mixed performances in February, reacting to global risk sentiment and central bank actions.
- AUD/USD: The Australian Dollar faced headwinds from weaker-than-expected economic data, with RBA signaling a cautious stance. The AUD/USD pair remained under pressure, struggling to hold above 0.6500.
- NZD/USD: The Kiwi remained relatively stable but lacked upside momentum due to global risk aversion. RBNZ’s policy stance signaled stability, but weak export data weighed on the NZD.
- USD/CAD: The Canadian Dollar saw fluctuations based on oil price movements. While higher crude oil prices supported CAD, strong US economic data kept the pair above 1.3400.
Emerging Market Currencies: Emerging market (EM) currencies faced volatility in February, as the USD remained dominant.
- USD/CNY: The Chinese Yuan weakened due to weaker economic data and ongoing trade tensions with the US. The PBoC’s liquidity injections provided some support but failed to reverse the downtrend.
- USD/INR: The Indian Rupee remained range-bound, with RBI interventions limiting excessive depreciation.
- USD/BRL: The Brazilian Real weakened amid political uncertainty and global risk aversion.
Key Takeaways & Market Outlook:
- The USD demonstrated resilience throughout February, driven by geopolitical tensions, strong economic data, and safe-haven demand.
- GBP/USD faced resistance at 1.2700 and struggled to maintain gains above 1.2600 due to USD strength.
- EUR/USD remained under pressure, struggling to hold above 1.0500, with weak Eurozone economic data compounding losses.
- GBP/EUR touched multi-year highs, but upside momentum was capped by overall market uncertainty.
- Commodity-linked currencies remained volatile, reacting to central bank policies and risk sentiment shifts.
- Emerging market currencies continued to struggle against the USD, with global uncertainties adding downside pressure.
Outlook for March 2025: Looking ahead, traders will closely watch central bank decisions, upcoming inflation data, and geopolitical developments. The USD’s direction will be key in determining future FX movements, with continued volatility expected across the major currency pairs in March 2025. Key events to watch include:
- US Federal Reserve Meeting: Any hawkish signals could further boost the USD.
- ECB Policy Update: Market expectations for rate guidance will impact the EUR.
- UK Economic Data Releases: Inflation and GDP updates will determine GBP direction.
- China’s Economic Outlook: Further weakness in CNY could impact global markets.
Overall, market participants should prepare for sustained volatility as macroeconomic factors continue to shape FX trends in the coming months.